EUR/USD 9/8/17 Outlook

September 8, 2017 9:23AM CDT

On the back of the European Central Bank meeting yesterday, the question we’re left asking ourselves is when and if so, how much will Mario Draghi and his Constituents pair back their Euro Zone sovereign debt purchases aka QE.  The ECB has been buying up nearly 60B worth of assets since March and previously as much as 80B.  It’s a widely held consensus view that Draghi will trim Euro Zone QE at the end of the year, announcing the policy decision at their October meeting.  However, yesterday we did hear a more reserved and certainly less hawkish ECB.  Draghi expressed some concern for the rapidly rising EUR/USD exchange rate, and it’s potential for impeding on Euro Zone growth and inflation progress.  Draghi did however revise EZ growth outlook higher, all the while revising inflation forecasts lower for the next two years.  The Euro Currency’s bullish drive vs the USD (+13% ytd) has been one of the largest consensus held viewpoints according to CFTC data.  Adding further fuel to the fire has been the US Fed and Janet Yellen’s dovish pivot on US interest rates.  Tracking US Fed Funds futures and the CME Fed Watch Tool, the market is currently pricing in the odds of a December rate hike by the Fed at a paltry 31% chance.  So the ball is in Mario Draghi and the ECB’s court and the market is watching closely.  While we don’t expect a full end to Euro zone QE, we do expect a pairing of its asset purchases back to 40B and possible extension thru 2018.  All of the guessing aside, the EUR/USD is presently in bull formation, however caution is warranted for “johnny come lately”, as we’re in a very overbought state.  Consider becoming bullish into corrections closer to 1.1720, which was the Euro’s breakout from a nearly two year sideways/bearish trend.  Furthermore, keep your ear to the ground for any pivots in US Monetary Policy from dovish back to hawkish, this will certainly hamper the global exchange rates. 

Euro Weekly Chart; Previous break-out level of 1.1710 should now act as support

Euro Weekly Continuation Chart

RJO Futures | 222 South Riverside Plaza, Suite 1200 | Chicago, Illinois 60606 | United States
800.441.1616 | 312.373.5478

The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that RJO Futures believes to be reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgement at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.

This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.

Distribution in some jurisdictions may be prohibited or restricted by law. Persons in possession of this communication indirectly should inform themselves about and observe any such prohibition or restrictions. To the extent that you have received this communication indirectly and solicitations are prohibited in your jurisdiction with registration, the market commentary in this communication should not be considered a solicitation.